Lordstown Motors (RIDE) - Get LORDSTOWN MOTORS CORP. Report dropped on Tuesday after Morgan Stanley analysts downgraded the electric-vehicle maker to underweight from equal weight and slashed their price target to $2 from $8.
Shares of the Lordstown, Ohio, company at last check were 6.8% lower at $5.45.
Analyst Adam Jonas said in a research note that he was publishing "a significant update" to his forecasts and discounted cash flow valuation following new information that was released after hours last week.
He said that Lordstown's agreement to sell its plant to Taiwan's Foxconn Technology Group for $230 million is less than 20% of his plant-value estimate.
Jonas, who had restarted coverage of the company with an equal-weight rating when the sale was announced, said he had previously assumed an asset value of the plant of roughly $1.3 billon, or about $2,300 per unit of capacity.
"The agreed plant value is roughly one-fifth the value we had assumed in our prior price target," he said.
Lordstown, which had purchased the plant from General Motors (GM) - Get General Motors Company (GM) Report in late 2019, said it would move forward with a plan to build a limited number of vehicles for testing, validation and verification through the rest of the year and the first part of 2022.
"Lordstown is negotiating a contract manufacturing agreement with Foxconn to make the Endurance and potentially other models on a new platform," Jonas said.
The analyst said he had previously assumed the Endurance project would be canceled "as we do not see a path to commercial viability at any appreciable scale."
"In our opinion, continuing with the Endurance likely exposes the company to the risk of further elevated cash burn and liquidity risks even in a contract manufacturing scenario which involves shifting much of the fixed cost burden (plant and most labor) to Foxconn," he said.
Jonas said that at $6 a share, the market is discounting a successful consummation of the Foxconn deal, a modestly successful Endurance program yielding positive free cash flows, and at least 50,000 units of volume on a new platform with Foxconn at roughly $50,000 ATP, or available to promise, by 2030.
The agreement with Foxconn "helps secure the future of the Lordstown plant and buys time to explore other business opportunities for RIDE (new programs, new platforms, new segments that have yet to be developed)," he said. But "we believe there would likely be little left for shareholders."
Meanwhile, RBC Capital analyst Joseph Spak raised his price target for Lordstown on Tuesday to $5 from $1 while keeping an underperform rating on the shares.
Spak had a different view on the plant sale, saying that it provides a much needed capital infusion and that Lordstown's business-model change should reduce cash burn.
The analyst added, however, that he continues to expect Lordstown to underperform. That's because the company will still need to sell its Endurance vehicles, which do not "screen well" against the "tough" competition from Ford's (F) - Get Ford Motor Company Report F-150 Lightning Pro and other players.
Lordstown had come under investigation this summer by the Securities and Exchange Commission, which sought information regarding the merger between DiamondPeak and Legacy Lordstown as well as the reported vehicle preorders the company received.
The company eventually ousted Founder and Chief Executive Steve Burns over misstatements he made about the preorders for the Endurance.